Economics Costs of Inflation
Inflation creates uncertainty and confusion. When inflation is high it also tends to be more volatile. It becomes more difficult for firms to predict future prices and costs, therefore they tend to reduce or delay investment decisions. Therefore this tends to adversely effect economic growth in the long term. 3. Lower Competitiveness High inflation in the UK makes the UK less competitive compared to other countries. This will reduce demand for UK goods, causing lower growth and possibly balance of payments problems. This is increasingly important with the globalisation of the world economy. If we do lose competitiveness in the long term it is likely to lead to devaluation of the UK exchange rate. 4.